Corporatism and Accountability

A worrisome trajectory of activism has emerged in Corporate America over the last several years. In 2019, the Business Roundtable, an association of CEOs of almost 200 major U.S. companies, issued a statement extending the remit of a company’s obligations to serving all stakeholders, beyond that of simply maximizing shareholder value. The Environment, Social, and Corporate Governance (ESG) movement among companies and institutional investors to consider sustainability and social impact in investment decisions has proven to be more than just a passing fad. Most recently, hundreds of companies through their CEOs published a letter opposing “any discriminatory legislation” that in their belief could constitute suppression of voting rights, particularly those of ethnic minorities. This was in direct response to a new law passed in Georgia in late March. 

Reporting about the new law, and the characterization thereof by the CEOs opposing it, rarely gives air time to the view of the Georgia law’s proponents, primarily Republicans and political conservatives, that the law (and other legislation like it) was designed to make it “easy to vote and hard to cheat.” While a full historical accounting of the 2020 election cycle has yet to be made, it is not disputed that our most recent elections witnessed widespread adoption of vote by mail, use of privately-funded drop boxes, and other modifications to past voting practices—rationalized by the COVID-19 pandemic or otherwise—which collectively have created colorable concerns about election integrity. 

In fact, upon closer scrutiny the provisions of the Georgia law appear to provide at least as liberal a voting regime as those of many “blue” states (including the president’s home state of Delaware, notwithstanding his harsh criticism of the Georgia law), and separately many conservative commentators have noted the irony of Major League Baseball’s decision to move this season’s All-Star game from Atlanta to Denver, a far less ethnically diverse city with the clear consequence of harming minority-owned businesses in metropolitan Atlanta as a result. 

The point of this closer look into the merits of the Georgia law is to illustrate that, media and public relations atmospherics notwithstanding, a reasonable political debate can be had about the tradeoff between securing the vote and assuring that only valid votes are counted on the one hand, and facilitating citizens’ ability to vote on the other. A subtext of the opposition to the Georgia law is that this isn’t a legitimate tradeoff—“more ballot access is always better!” But such assertions fail. If it were truly the case that more access was always better, then all voting should be conducted online without requiring identification in order to maximize access and ease of voting. 

The real question is not whether elections need safeguards, but what they should be and how best to balance security and access. 

The CEOs’ public statement can thus be seen not as taking a stand, but rather as taking sides. When big business advocates for specific positions on significant societal and policy issues, there’s a name for that: corporatism. Corporatism is a philosophy in which societies are organized by “corporate,” or constituent, interest groups. It’s not an uncommon form of political organization and has been witnessed in various permutations throughout history, including the medieval French etats or “estates” and Mussolini’s Italy, as well as (to an extent) modern Germany. In its contemporary manifestations, workers and employers (among others) are organized in a manner so as to serve as organs of political representation, while controlling the persons and activities under their jurisdiction. 

So then is corporatism bad, or at least bad for America? Why shouldn’t well-organized interest groups have a greater say in American life? Despite its superficial appeal, corporatism, particularly as practiced in the commercial sphere, is antithetical to traditional American civic norms and values in the following ways: 

In the case of political CEOs, for whom do they speak? Lucian Bebchuk of Harvard Law School found that among the signatories of the Business Roundtable’s “stakeholder value” pledge, only one of the 48 for whom data were available had consulted his company’s board of directors before doing so. CEOs are of course welcome to have political and policy views and to express them, but in doing so they should be careful to avoid using their employer as a platform for their own preferences. 

Where to draw the line? In speaking to issues outside of the purview of their commercial activities, where should companies and CEOs draw the line? Having taken a position on one issue, must they weigh in on all matters of political import? And how does speaking out on any and all such issues align with corporations’ own conduct? Many “woke” companies expressing solidarity with social justice movements have been rightly pilloried for not speaking out against the Uighur genocide in China—and in some cases having supply chains tainted by Uighur slave labor. 

How do companies balance their stakeholder obligations? Corporatist-inspired policy advocacy is of a piece with “stakeholder capitalism,” and illustrates the muddle of the competing obligations it entails. Is it more important to generate shareholder value, or to stand for justice? At its extreme, policy advocacy risks imperiling an enterprise if it invites boycotts, diverts management attention, or damages counterparty or regulatory relationships.  

How are activist companies perceived? At a societal level, the shareholder/stakeholder muddle is mirrored in the greying of the border demarcating where government ends and commerce begins. A healthy representative democracy expresses the will of the people through an accountable electoral process; how do corporations express the people’s will? Twitter-fueled shaming campaigns or boycotts are hardly the equivalent of the ballot box, and conveying policy objectives through commercial enterprises rather than republican government undermines confidence in both. 

Should interest groups speak on behalf of citizens? This is where the true dead-end of corporatism lies—the notion that, contra 250 years of American history, one must identify as a member of “labor” or “commerce” or the “armed forces,” rather than as more than one—or none—of these, and that the primacy of the individual is no longer sacrosanct. 

It is notable that the same crowd that decries companies lobbying government out of self-interest are cheering the opponents of the Georgia legislation for “speaking out.” The symbiosis of enterprise championing progressive causes while seeking governmental favor reeks of crony capitalism and regulatory capture, and is also the culmination of a larger effort to bend American institutions to ideological ends. 

Moreover, even if one dismisses the points above and is philosophically sanguine about American corporatism, it is an untested prospect for U.S. industry operating in a global marketplace. How will corporate America fare against rivals playing by different rules and seeking distinct objectives—some of them perhaps even seeking to maximize shareholder value? 

That CEOs are taking sides on the political issues of the day is reflective of a decaying civil society and degraded democratic institutions. At one level, the demand they do so is understandable: currently, CEOs are generally held in higher regard than are politicians. It is an impulse, however, that should be resisted. Just as military commanders should (and thankfully, generally do) remain in their barracks, CEOs need to remain in the boardroom and focus on fulfilling their fiduciary obligation to maximize shareholder value. To do otherwise is to vest unelected individuals and institutions with responsibilities better governed by the democratic process.

About Richard J. Shinder

Richard J. Shinder is the founder and managing partner of Theatine Partners, a financial consultancy.

Photo: (Photo Illustration by Budrul Chukrut/SOPA Images/LightRocket via Getty Images)

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